Angel investors often invest in startups who don’t have the backing of a major company. But they’re looking for more than just cash; they want to help shape and grow companies that will be around for decades. These angels make good partners because their contributions are needed, but not undervalued by larger corporations.
“How to write a proposal for angel investors” is an important skill that every entrepreneur must learn. If you are looking for funding, it is best to find angel investors who will invest in your business without any strings attached. Read more in detail here: how to write a proposal for angel investors.
I’m not your run-of-the-mill angel. I’m a full-time sales manager and recruiter, as well as a mother. I’m not a member of an angel organization. I don’t have a business degree and don’t reside in Silicon Valley. I reside in a tiny town surrounded by farmers, and at the age of 29, I made my first angel investment because my father suggested it.
I’m not your run-of-the-mill angel. Or are I the one? What’s more, why should you care?
The Angel Capital Association states:
- Every year, 55,000 firms are funded by angel investors, compared to 1,500 by venture capitalists.
- Last year, angel investments outstripped venture capital commitments by $3 billion (15 percent ).
- Angel investors invest in one out of every forty projects they assess (2.5%) compared to one out of 400 for VCs (0.25%).
- Only 15,000 of the 225,000 angel investors who made investments in the previous two years are members of angel clubs. Furthermore, the IRS estimates that 3.9 million persons are accredited investors.
What exactly does it imply?
1. Without finance, entrepreneurs must find a means to get momentum (sales).
2. If a company receives funding at all, it is likely to come from an angel, preferably one who is not affiliated with an investment group. If businesses just pitch to angel groups, they’re only reaching out to 6% of active angels and 0.4 percent of all eligible investors.
“The JOBS Act, the JOBS Act! Title III, Title III!” you could exclaim. Yes, the JOBS Act (Jumpstart Our Business Startups) is exciting, and it will attract a large number of new investors to the market.
However, according to Kickstarter, when you open up fundraising to non-accredited investors, 58 percent of firms fail to accomplish their financing target, and 60 percent of those that fail don’t raise 20 percent of their goal. Furthermore, just 13% of these successful initiatives collected more than $20,000.
I’m not suggesting you shouldn’t use a crowdfunding site. I’m saying be realistic about how much money you can raise. Taking a campaign online and encouraging non-accredited investors to utilize a crowdfunding platform to show their support, control volume, and advertise your company is a terrific way to show support, manage volume, and market your business.
However, for greater sums of money, companies must pursue angel investors offline. So, who exactly are these improbable angels? They are full-time professionals who frequently don’t have time for due research (and may not even know how to conduct it) and rely on trusted recommendations or gut instincts to make judgments (more on gut feelings later).
She’s most likely a local professional who loves to put her money into her own community. Consider a lawyer, a dentist, or a cosmetic surgeon. He’s a busy professional who won’t be peering at your firm; if he decides to invest in it, it’s because he believes you’ll manage it effectively.
What’s a big plus? They represent a section of the available money that can support your company that isn’t constantly harassed by transactions. As a result, your firm will be evaluated on its own merits, rather than being compared to 40 others as it would be in an angel group.
So, how can you get them to pay attention to you—and give you their money?
16 Ways to Find Unexpected Angel Investors for Your Startup
1. Write a fantastic business plan, but keep in mind that only a few people will read it.
Business plans are a vital exercise that should always be given to demonstrate that the entrepreneur is serious and has done his research. No one, however, will read beyond the first page unless they’ve already made a gut choice to continue reading.
As a result, a compelling summary page with graphic components that “advertise” your firm should always be included. This is when BPlans comes in handy. If you’re sending it electronically, include video (try Animoto) and keep it under one minute. People’s attention spans are short!
2. Avoid abbreviations (unless you define them).
Your papers will be viewed by people outside your sector, and reading anything heavy with acronyms might be scary. It puts prospective investors at a remove, and they won’t receive the “gut” sensation they need to become enthused. “I don’t know enough about this business to invest in it,” they’ll remark instead.
Furthermore, the same acronym will have distinct meanings in different businesses. A Business Analyst, a Bachelor of Arts, or a Bad Ass might all be abbreviated to B.A. Simultaneously, reduce your company strategy to a simple reading level. Your dentist could be interested in your new software, but she has no idea what SaaS is, and Software as a Service is of little use to her.
If you mention Software as a Service, you may add, “A piece of software you access through the internet and pay for on a subscription basis, such as Salesforce.com.” Oh, it makes sense now.
3. ABP (Always Be Pitching): Always be pitching.
What is the best way to approach this without seeming obnoxious? By providing as many chances as possible for individuals to inquire about what he does.
The easiest method to achieve this is to start by asking people what they do and being genuinely interested in their responses. Naturally, they will inquire as to what you do for a living. Then remember your one-sentence response and add, “and we’re seeking funding from private investors to get us started.” They’ll usually ask a question about your company, and then the discussion will begin!
This can be done anywhere. It is not necessary to do so during a formal networking event. The goal isn’t to beg for money; rather, it’s to let everyone know what you do and that you’re searching for capital so that they can either invest in you or introduce you to others who can.
4. Host a pitch night!
Although most angels or prospective angels aren’t members of a group, the group dynamic has benefits. Potential investors (and others who know them) may see that others are enthusiastic about the project, which validates their own sentiments. Few individuals want to be “the first” or “the only” person to invest in your company. Make use of social evidence to your advantage.
How? First, choose a location and a date. These should not be charged for. Perhaps the library or a local IT firm might host the event. Look for supporters in the community and inquire about available space. Make the event a weekday around 7 p.m., when professionals will be able to get there after work. Serve refreshments and have copies of your business plan on hand. Allow time for people to network (half an hour works well), then greet everyone and deliver your pitch. Make your invites open-ended so that even if they aren’t angels, they may still recommend and bring friends. Get them excited about the possibility of a new business launching in their neighborhood!
Bonus points: Invite a local expert to speak about your field (make sure it supports your business idea). This offers the audience a reason to come, enables him to promote his company, and sets the setting for your presentation.
5. Go with your gut instinct.
“I look at all the information, do all the due diligence, but in the end, I make a judgment with my gut,” many investors say. What exactly does it imply? And how are you expected to know how they’re feeling on that particular day? It’s because pitching is the process of making a sale, and all transactions are done emotionally and then rationally.
Wait, you didn’t want to work in sales? Welcome to the dark side, then. Whether they have the title or not, everyone is selling something. A professional understands how to maneuver through people’s emotions without manipulating them. The majority of what consumers will buy into is their impression of the entrepreneur and her enthusiasm for the product. After all, it is the entrepreneur who will be getting up at five a.m. every day to create the firm, and she will never be more enthusiastic about it than she is now.
Know that 90 percent of your job is to make people enthusiastic about your firm, whether you’re speaking one-on-one or presenting to a group. The remaining 10%, which is logic, is made up of statistics, facts and numbers, profit and loss, and predictions. It requires 100 percent commitment to go through with an investment choice, but don’t overlook the emotional component. As a result, the more interesting proposals receive a second look, while the more plausible ones may go unnoticed.
Later on, we’ll get to the meat of the matter. The shorter the pitch, the more emotional it should be. Only then will you have the chance to use argument to back up their enthusiasm.
6. Be open and honest.
Though an angel’s or angel group’s extensive due diligence may seem invasive at first, you’re entering a long-term partnership, and complete transparency is necessary. If your bucket has any holes in it, now is the time to patch them up.
What you may consider a deal breaker might be seen as a manageable difficulty by a seasoned investor. Those irritating demands from angel investors to look into all the confidential aspects of your company will be less of a headache if you anticipate and prepare for them. Although not everything has to be revealed immediately once, as a professional company owner, you should have the following information on hand:
- Plan of Action (should define market, problem, growth potential, sales channels, competition, patent info, exit strategy, profit margins, scalability, milestone markers)
- Balance Sheet and Financial Model (even if there are zeros across the board)
- Organizational Charts and Resumes for Managers
- Customer Testimonials
- Personal Testimonials
- Numbers from the Social Security Administration (for background checks)
- Table of Capitalization and List of Shareholders
- Option on Stocks
- Information about how to contact us (for managers, directors, shareholders, developers if outsourced, attorneys, accountants, consultants)
7. However, do not want a non-disclosure agreement.
Non-disclosures leave a sour taste in people’s mouths, which is why most angels refuse to sign them. They see a lot of transactions, and a lot of them are the same. Because they are contemplating an investment, they don’t want to be legally bound to you indefinitely, therefore you should only pitch to individuals you trust. You won’t be expected to reveal the patentable parts until far later in the dialogue if something very private is undergoing patent protection.
8. Be aware of your numbers.
Someone with the position of CEO must understand the whole firm from top to bottom, which includes numbers. If someone helped you with the finances, make sure you understand everything so you can explain it to others and answer questions.
If you are more of a technical person and not a natural business leader, inform your investor that you aim to employ a CEO to take your position as soon as feasible. Most investors prefer to put their money into a company rather than a product.
9. Create a board of advisers.
Unless you’ve previously created and sold a business in the same sector, you’ll need a board of advisers to fill in the gaps in your management team’s expertise and experience. These are sometimes angels themselves. In your company strategy, include a list of them. To the typical angel who won’t be able to help in that manner, knowing that industry specialists are guiding you through choices is quite comfortable.
10. Put your money into your own company first.
Angel investors are more inclined to back entrepreneurs who have previously invested in their own businesses or convinced friends and family to support them. I’d say at least the first $25k in cash if I had to put a figure on it.
If you’re thinking to yourself, “I recently graduated from college and have no money,” know that I’ve been there. I strongly advise you to look for work. An entrepreneur who can work full-time on his company has value, but one who has real-world professional experience has much more. Invest all of your money and spare time in your company. Take advantage of your youth’s free time and low financial commitments!
11. However, don’t put too much money into it.
It is possible to overinvest. Anything beyond $100,000, in my opinion, raises a red flag, albeit other angels may differ. Because cash is king, it’s critical to leverage it. It leads me to assume that the entrepreneur held off on giving up equity for as long as feasible and now needs financing to get out of a financial bind.
There are always outliers, so if you’ve put a lot of your personal money into something, be ready to confront it, knowing that angels may have unspoken reservations.
Uncle Sam is an angel, in my opinion.
Many consumers aren’t aware that their tax-deferred, self-directed retirement accounts may be used to make private investments. Of course, there are several restrictions to follow, but the appropriate custodian may make it quite simple.
Self-employed persons are allowed to put away a lot more money in their retirement accounts than workers, and they’re already investing it (typically in the stock market), so they may as well devote a piece of their portfolio to angel investments. Angel investments are inherently dangerous, and just because Uncle Sam says it’s OK doesn’t imply the IRS has supported or certified any of them in any way.
13. Be honest with yourself about how much you’re worth.
It’s possible you’ve heard that a value should be twice since investors will halve it. That’s become the “norm.” However, it causes the investor to doubt your reasoning. Looking an entrepreneur in the eyes and saying, “Five million?” is always uncomfortable. Really?”
Negotiation is unavoidable, but it does not have to be a painful one.
14. Make a backup plan for your backup plan.
What if you’re never able to acquire another investment? With the data above, a company’s chances of receiving capital are slim to none. A venture fund has a less than 1% probability of funding a company, while angel investors have a less than 3% chance of funding a company. If you’re not in Silicon Valley or Boston, your chances are slim.
As a result, you must have a contingency plan. How will your firm be successful if you never earn another dime? Even if the remaining $950k is never raised, where would the $50k go particularly to help the business?
15. Request more than just money.
Because they have full-time jobs that are likely unrelated to what you do, most typical angels won’t have time to delve in and assist you with your company.
However, you may still benefit from their knowledge. Everyone has something to offer, whether it’s sales advice, office space, or a referral to someone in their network. They will feel more in control of the result if they feel like they are contributing in some manner to the success of your company.
16. Instead of asking what your angel can do for you, ask what your angel can do for you.
A financial transaction isn’t all that an angel investment entails. This is the start of a long-term relationship. You may believe that the prospect of a 20X return on investment is sufficient compensation. However, the likelihood are that they will never see that money again. Angel investors often own a company or work in a C- or V-level position in one. How can you assist him in achieving his professional or personal objectives? What type of persons can you put him in contact with? What kind of individuals do he consider to be excellent customers? Employees? Partners?
People will recognize you are not a robot, but an interrelated member of their society, the more other-focused you are. Isn’t it true that we’re all here to aid one other? Make sure your personal ideals are reflected in your professional connections. Investors will see that you have the correct values in place to assist you when it comes to making difficult business choices.
Having said that, being sponsored isn’t the final aim. It takes a long time and should only be undertaken when your company is ready to grow (the preferential stage of most angels I know).
Many new entrepreneurs believe that obtaining cash, whether via crowdfunding or courting venture capital, validates their company. It’s not the case. It does not guarantee that your company will succeed.
The majority of businesses fail. Not surprisingly, the majority of venture-backed businesses will fail. As a result, obtaining finance does not automatically increase your chances of success. There is a proper paradigm and stage for raising large sums of money.
With or without it, get your goods to market! Whatever you’re working on will almost certainly alter the world, and we’ll need you!
The “investment funding” is a process that many startups go through in order to raise startup funds. The process can be difficult and time-consuming, but it is worth the effort.
Frequently Asked Questions
Do angel investors fund startups?
A: Yes. Angel investors are people who invest their money into startups that they believe in with the hopes of earning a profit or getting something back at some point, for example interest on their investments or helping to grow the company. Many angel investors often fund young companies called angel funded which means it has gone through an initial round of funding from angels and is now looking for further investment to take it to mass production level.
How do I ask angel investors for money?
A: You can consult with a lawyer or ask friends and family for money, but the best option is to find an angel investor. Angel investors are people who have invested in your idea before because they believe that it has potential. The first step would be finding someone you think might be interested in investing in your project- then send them a pitch deck detailing all of the information about what you plan on doing.
How much can you raise from angel investors?
- how to impress angel investors
- what do angel investors get in return
- questions to ask angel investors
- what do angel investors look for
- how to write to an angel investor